October 27, 2024 – Written by Tim Boyer
STORY LINK Pound to Dollar Week Ahead Forecast: For GBP/USD Reeves and Trump to Dominate
HSBC expects the Pound to Dollar (GBP/USD) exchange rate will weaken to at least 1.25 over the next few months.
The bank is broadly bearish on the Pound and net dollar gains to drive Cable lower.
Danske Bank considers that GBP/USD can hold above 1.30 on a 6-month view.
GBP/USD dipped to 10-week lows near 1.2900 before a recovery to 1.2980.
According to ING, GBP/USD will remain vulnerable on a near-term view; “For now, we reiterate a bearish bias on GBP/USD, which can suffer from defensive positioning ahead of the combined UK budget and US election risks. Our view remains that 1.28 can be reached in the near term.”
HSBC commented on UK fiscal policy; “Our economists expect government measures to reduce the budget deficit from an estimated 3.7% of GDP in fiscal year 2024/25, to 3.1% of GDP in 2025/26, and further falls thereafter to 1.5% in 2028/29.”
It added; “This represents a tightening of fiscal policy that looks unlikely to happen in the US whoever wins the White House. It would also likely require looser monetary policy to compensate.”
Markets remain confident that the Federal Reserve and Bank of England will both cut interest rates by 25 basis points at the November meetings, but the overall markets environment could be radically different, especially given a binary US election outcome.
HSBC added; “our economists expect a deeper rate cutting cycle, with 225bp of cuts by the end of 2025 once persistent inflation eases, taking the Bank rate to 2.75%.”
The US election could be pivotal for the Pound.
ING commented on near-term dynamics; “Markets and betting odds are leaning increasingly in favour of Trump. This may be due to greater hedging demand for a Trump presidency, which is seen as a more impactful macro/market event due to protectionism, tax cuts, strict migration policies and risks to the Fed independence. We see both dollar upside risks and wider implied-historical volatility spread into Election Day.”
According to HSBC; “We view three of the four election outcomes as USD bullish for the weeks after the election. Only a Harris Presidency with a divided Congress would be clearly USD negative, in our opinion. Even that scenario might ultimately prove USD bullish. We also view a disputed or delayed election outcome as potentially USD bullish.”
TD Securities commented on the election; “A “Red Wave” (Republican sweep) would prompt a substantial USD rally, reminiscent of US Exceptionalism driven by tariffs, tax cuts, and deregulation.”
It added; “Conversely, a “Blue Wave” (Democratic sweep) would be detrimental for the USD. It could lead to unwinding of pro-Trump trades and hedges, causing initial volatility. Additionally, higher taxes and increased regulation could make US equities less attractive, prompting a shift towards Asian currencies and alternatives.”
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TAGS: Pound Dollar Forecasts
